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We discussed in November BJ’s Wholesale Club in this column when the stock was trading ~$87. The observation we made at the time was that, although the regional wholesale operator larger and better-known national competitor, Costco , was growing faster — it was also trading at roughly double the forward valuation. At the time, BJ’s was trading at ~25 times forward estimated earnings, half the 50 times forward estimated earnings that Costco commanded, and proposed a bullish trade in the name. That was eell-timed as it turned out. BJ’s proceeded to rally nearly 40% in the next five months, outperforming Costco by more than 30% over the same time frame and outpacing the S & P 500 , which actually declined in large part due to the “liberation day” tariff tantrum. Since topping out just shy of $120, the stock has round-tripped its gains almost entirely and once again, BJ’s — which is forecast to grow revenues by 6.5% next year and earnings by 7.6% — is trading at a well-below market multiple and 19.3 times forward earnings, well less than half the 43+ times earnings of Costco. The trade It’s not that BJ’s doesn’t face challenges, including recent data that suggests consumers are badly stretched. Auto loan delinquency data and other cracks at the low end hit several buy-now-pay-later companies hard early this week, and banks whose credit-card businesses focus on the lower-end consumer, such as Capital One , will be eyed nervously when financials begin reporting earnings in two weeks for increases in loss reserves. However, cost-conscious consumers don’t stop eating, and BJ’s membership warehouse clubs generate most of their revenues from groceries (70%). Once again, a prudent investor would prefer Costco to BJ’s if they could buy the companies at the same earnings multiple, but might look for a better value if they can’t. You might prefer Costco to BJ’s, but at less than half the forward multiple, it might be worth switching brands. Here’s a possible trade. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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